Empty storefronts are a sign of the economic times

Published 10:12 am Wednesday, April 7, 2010

Take a walk around downtown Everett and you’ll be lucky to go more than a few blocks without spotting a “for lease” sign.

Until the economy rebounds, most retailers have few choices: reduce costs or close. The empty shops around Snohomish County show that many small companies took the latter option.

“Because of the lingering impact from the deep recession over the past two years, (commercial) vacancy rates will trend higher” in 2010, Lawrence Yun, economist for National Association of Realtors, wrote recently in a quarterly update.

Nationally, retail space vacancies are on the rise. Vacancy rates hit a high of 12.4 percent in the fourth quarter of 2009. That figure was expected to rise to 12.6 percent in the first quarter of 2010, according to the National Association of Realtors. With retailers struggling to stay in business, many are asking for rent reductions. Rent for retail space fell 4 percent on average across the country in 2009 and is expected to decline another 2.4 percent in 2010.

Locally, commercial real estate brokers like “Downtown” Dennis Wagner, acknowledge a spike in requests for reduced rent. But Wagner also has seen a surge in the signing of new leases in recent weeks, particularly for retail spaces near the Comcast Arena and Events Center.

“All of the sudden, it has picked up,” Wagner said, noting that he signed three leases in one week.

Wagner can’t explain the increased interest in downtown Everett. Rates have dropped some but not so drastically that Wagner sees that as the main reason for new rentals. Several of the recently leased properties have been vacant for years, he said.

Some of the new businesses moving in, however, are ones that could flourish in a down economy: an Aladdin Bail Bonds shop on Broadway; a collection agency in the old Burnett Jewelry store on the corner of Hewitt and Wetmore; an auto repair shop on Broadway. Other new businesses giving Everett a go include an art gallery next to Zippy’s and a new bar on Hewitt Ave.

Several retailers have moved into smaller spaces in order to weather out the down economy.

“They’re sizing down,” Wagner said.

But large retail spaces, like those abandoned by now defunct big box stores like Circuit City, litter Snohomish County. The Herald looked at 10 such buildings, 20,000 square feet and larger, a year ago. Of those, only a few, including the former Joe’s Sports store in Lake Stevens, have been rented in the last 12 months.

Retail isn’t the only segment of commercial real estate still struggling. Both the office and industrial markets will face a challenging 2010, according to the National Association of Realtors. Only the apartment rental market — multifamily housing — is expected to do slightly better in 2010 than in 2009. However, apartment rent rates will continue to drop through the year.

Locally, the office market in south Snohomish County had a vacancy rate of about 16.6 percent at the end of March, according to Colliers International. About 68,000 square feet of office space went vacant during the first quarter. However, that’s significantly less than the 243,000 square feet of office space that went vacant in the last quarter of 2009.

The county’s industrial real estate market added 138,000 square feet of vacant space in the first quarter, pushing the industrial vacancy rate to 9.1 percent, Colliers reported. That’s up from 7.4 percent in the first quarter of 2009. The real estate services company predicts the county’s industrial vacancy rate will continue to increase in 2010 but at a slower pace than it did in 2009.

Commercial real estate owners have been on the mind of Treasury Secretary Timothy Geithner.

“Commercial real estate’s still going to be a problem for the country,” Geithner said in a recent interview with CNBC.

Bad commercial loans will be especially difficult on small banks, he said.

Like thousands of homeowners, many commercial property owners owe more on their mortgages than what their properties are valued. And like homeowners, some commercial owners are choosing to walk away from properties.

“Frankly, I am surprised that we have not seen a lot more,” Rob Little, chief investment officer of Cornerstone Real Estate Advisors LLC, told the Wall Street Journal.

But Wagner says instances of commercial property owners walking away are few and far between here in Snohomish County.

“It’s not happened to us in this community,” he said.